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Life Assurance
Monday, May 1, 1989
Don’t substitute

Every industry has its bad eggs. Life assurance is no different. But, to their credit, those who run life offices are continually finding ways of blocking the unscrupulous few who slip through the selection process used to find suitable representatives.
Evidence of this is the Replacement Agreement which exists between members of the Life Offices’ Association (LOA) - something that virtually outlaws the practice of substituting policies.
In the past, unsuspecting life assurance policyholders might have been persuaded to replace or substitute their existing policies with “new or improved” ones. Substitution occurs when a policyholder replaces a life or disability policy with a new one. Yet it is rarely necessary for a policyholder to go through the tedium and initial expense of taking out a totally new policy.
If you feel your present policy is not meeting your changing needs, it is a painless and cheaper procedure to up- grade it or augment it with another policy. In the majority of cases a policy can be altered successfully at no extra expense, says Jurie Wessels, public relations officer of the LOA.
Further, he says, to discourage unnecessary substitutions and to protect the public, member offices of the LOA ascribe to the “Replacement Agreement”. LOA members believe it is unethical to pressurise anyone into replacing his existing policy. On the other hand the public should have the right to replace policies when appropriate. An example of an obviously “appropriate” substitution would be in the event of the insured becoming a member of a compulsory group insurance scheme which effectively replaces individual insurance.
Unique psychological situations could possibly warrant substitution too. For example, a person replacing a policy for one that is more “AIDS aware”.
Member offices have also agreed that if substitution takes place, the consultant will not receive commission on the replacement deal. The commission will be transferred to the insurance company which has lost the business.
The person taking out the new policy will obviously still fork out the commission. Policyholders are protected from ignorance by a further point in the agreement. All life assurance consultants are obliged to explain the “pros and cons” of substitution. So anyone contemplating substitution should now be made aware of the price of replacing his life assurance policy. The LOA feels the “Replacement Agreement” has mostly curbed shady substitution deals, protecting both the public and the good name of the insurance industry.
Consumers facing pressure to replace a policy should remind his agent of the agreement. Perhaps show him this article and then show him the door.

Copyright © Insurance Times and Investments® Vol:2.5 1st May, 1989
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